HOA "Assessment" that is for a new loan

[Catherine]

Client has a condo that levied a "special assessment" against all owners to deal with capital improvements. But the paperwork says it's to pay the loan. My take is that the improvements are additional basis in the unit, and since the loan is not in the taxpayer's name it is therefore not deductible mortgage interest.

Thoughts?

As an aside, this client is already greatly limited by mortgage interest deduction limits in what can be deducted. 

[BulldogTom]

It is common for an HOA to take out a loan in the name of the HOA for a capital project and pay the loan with the special assessments from the homeowners (normally the special assessment is pledged to the lender and restricted to be used only for the loan servicing).   

The payment should be treated in the same manner as any other HOA fee unless there is a direct correlation to capital improvements to the homeowner's unit.

Tom
Longview, TX

[Abby Normal]

Agree with Tom. The capital improvements are owned by the association and the association will depreciate them.

But there should be a basis increase. The amount will likely be different than the assessment, though.

https://www.nolo.com/legal-encyclopedia/tax-issues-when-selling-condo-townhouse-other-property-homeowners-association.html

[Catherine]

Somewhere in the stack-o-stuff there is a breakdown of the per-condo improvement amounts, that I will dig out after 4/15.

Thanks, guys!